Question

Home Hardware reported beginning inventory of twenty six shovels, for a total cost of $156. The company had the following transactions during the month:

Jan.		2		Sold 8 shovels on account at a selling price of $14 per unit
		16		Sold 14 shovels on account at a selling price of $14 per unit
		18		Bought 9 shovels on account at a cost of $6 per unit
		19		Sold 12 shovels on account at a selling price of $14 per unit
		24		Bought 14 shovels on account at a cost of $6 per unit
		31		Counted inventory and determined that 11 units were on hand

Required:
1. Prepare the journal entries that would be recorded using a periodic inventory system. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

A.Sold 8 shovels on account at a selling price of $14 per unit

B.Sold 14 shovels on account at a selling price of $14 per unit

C.Bought 9 shovels on account at a cost of $6 per unit

D.Sold 12 shovels on account at a selling price of $14 per unit

E.Bought 14 shovels on account at a cost of $6 per unit

F. Record the cost of goods sold

G.Record the inventory on hand based on inventory count

2. Prepare the journal entries that would be recorded using a perpetual inventory system, including any book-to-physical adjustment that might be needed. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

A. Record the sale of shovels.

B.Record the cost of shovels sold.

C.Record the sale of shovels.

D. Record the cost of shovels sold.

E. Record the purchase of shovels.

F. Record the sale of shovels.

G.Record the cost of shovels sold.

H.Record the purchase of shovels.

I.Record the entry for book-to-physical adjustment, if any.

3-a. What is the dollar amount of shrinkage that you were able to determine in requirement 1? (Enter "0" if you were unable to determine the dollar amount of shrinkage.)

Amount of shrinkage -

3-b. What is the dollar amount of shrinkage that you were able to determine in requirement 2? (Enter "0" if you were unable to determine the dollar amount of shrinkage.)

Amount of shrinkage -

3-a. What is the dollar amount of shrinkage that you were able to determine in requirement 1? (Enter "0" if you were unable to determine the dollar amount of shrinkage.)

Answer 1

1. Journal entries using Periodic Inventory System

Date	General journal	Debit ($)	Credit ($)
Jan.2	Accounts receivable	112
	to Sales (8 units * $14)		112
	(To record revenue earned but not received)
Jan.16	Accounts receivable	196
	to Sales (14 units * $14)		196
	(To record revenue earned but not received)
Jan.18	Purchases	54
	to Accounts payable (9*$6)		54
	(To record purchases)
Jan.19	Accounts receivable	168
	to Sales (12 units * $14)		168
	(To record revenue earned but not received)
Jan.24	Purchases	84
	to Accounts payable (14*$6)		84
	(To record purchases)

2. Journal entries using a Perpetual Inventory System

Cost per unit = $156 / 26 = $6

Date	Journal Entry	Debit ($)	Credit ($)
Jan.2	Accounts receivable	112
	to Sales (8 units * $14)		112
	(To record revenue earned but not received)
	Cost of goods sold	48
	to Inventory (8 units * $6)		48
	(To record cost of inventory)
Jan.16	Accounts receivable	196
	to Sales (14 units * $14)		196
	(To record revenue earned but not received)
	Cost of goods sold	84
	to Inventory (14 units * $6)		84
	(To record cost of inventory)
Jan.18	Inventory	54
	to Accounts payable (9*$6)		54
	(To record purchases)
Jan.19	Accounts receivable	168
	to Sales (12 units * $14)		168
	(To record revenue earned but not received)
	Cost of goods sold	72
	to Inventory (12 units * $6)		72
	(To record cost of inventory)
Jan.24	Inventory	84
	to Accounts payable (14*$6)		84
	(To record purchases)
Jan.31	Cost of goods sold	32
	to Inventory		32
	(To record for inventory shrinkage)

3-a. It is not easy to detect shrinkage in Periodic Inventory System. Therefore, the amount of shrinkage cannot be determined.

3-b. The amount of shrinkage in Perpetual Inventory System

Units to be hand = Beginning inventory + purchases - Sales

= 26 + 23 - 34 = 15 units

Units in hand = 11 units

Shrinkage = 15- 11 = 4 units

Inventory shrinkage = 4 * $8($14 - $6) = $32